House of Commons Hansard Debates for 28 Feb 1996 (pt 32)

Orders of the Day

Local Government Finance (Scotland)

5.40 pm

The Parliamentary Under-Secretary of State for Scotland (Mr. George Kynoch): I beg to move,

That the Local Government Finance (Scotland) Order 1996, dated 12th February 1996, a copy of which was laid before this House on 27th February, be approved.

Mr. Deputy Speaker (Mr. Michael Morris): I understand that with this, it will be convenient to discuss the following motions:

That the Local Government Finance (Scotland) Notional Amounts Report 1996 (House of Commons Paper No. 145), which was laid before this House on 24th January, be approved.

That the Revenue Support Grant (Scotland) Order 1996, dated 12th February 1996, a copy of which was laid before this House on 27th February, be approved.

We have precisely one hour and 20 minutes for this debate. I appeal to Front-Bench and Back-Bench Members to make speeches that are shorter than those that they had planned. [Interruption.]

Mr. Kynoch: I applaud the sense of humour of Opposition Back Benchers.

The motions relating to the Local Government Finance (Scotland) Order and the Revenue Support Grant (Scotland) Order state that they have not yet been considered by the Select Committee on Statutory Instruments. The Select Committee considered the original orders that were laid on 14 February at its meeting on Tuesday 20 February. Unfortunately, due to a mistake in the coming into force date, the instruments were withdrawn and were re-laid yesterday. The Select Committee will reconsider the amended orders at a future sitting, although I stress that their substance has not changed at all. I apologise to the House for any inconvenience that that may have caused and I am grateful to the members of the Select Committee for their assistance in this matter.

This is the annual opportunity for the House to debate local government finance. The debate takes place against the background of an unprecedented level of consultation and discussion about the settlement for the year ahead. In addition to the normal statutory consultation with the Convention of Scottish Local Authorities, I held a briefing in the House a week ago which was attended by many right hon. and hon. Members. During the past 24 hours, my right hon. Friend the Secretary of State and I held a series of meetings with hon. Members from all parts of the House and with council representatives. I look forward to a lively and, I hope, informed debate.

Mr. Nigel Griffiths (Edinburgh, South): Will the Minister give way?

Mr. Kynoch: Because of the time, I should like to proceed and until I reach the substance of figures I will not give way.

I propose to speak briefly about the detail of each of the two orders and the report. The purpose of the Revenue Support Grant (Scotland) Order is explained in detail in

28 Feb 1996 : Column 922

the report which accompanies the order, but the position is relatively straightforward and I do not think that I need say much about the order. Under the so-called AEF--aggregate external finance--guarantee, the revenue support grant that is payable to local authorities for each of the years 1990-91, 1991-92 and 1992-93 is adjusted either up or down in the light of any variation between their estimated and their actual level of non-domestic rate income. The order deals only with the two later years. We have agreed with COSLA that there is no need for any further adjustments of RSG in respect of 1990-91.

The objective of the guarantee, which was fully discussed and agreed with COSLA, is to ensure that each authority receives the combined amount of revenue support grant and non-domestic rate income that they were promised when they were first notified of their settlement for the year in question. At that stage my Department made an estimate of the non-domestic rate income that each authority would receive. The guarantee arrangement has been necessary because of the difficulty of estimating non-domestic rate income with any degree of accuracy--mainly because of appeals against valuation which take some time to resolve.

The order makes a further adjustment to the levels of RSG that are payable for each of the two years that are still covered by the guarantee in the light of returns that local authorities submitted to the Scottish Office last autumn of their actual rate income for the years in question. Because of the effect of successful appeals against 1990 valuations, in general there has been a reduction in rate income compared with previous estimates. Therefore, the order provides for the payment of extra RSG totalling just over £15 million to compensate for this reduction in rate income. Nearly £5.5 million of that amount relates to 1991-92 and the remaining£9.6 million relates to 1992-93. The total adjustment of just over £15 million is much reduced from that which was made 12 months ago, reflecting the fact that, as time passes, the non-domestic rate income for those years has tended to settle down.

I should make it clear that the figure of £15 million is net. Although most authorities will receive extra RSG, a few will receive less. That is because, against the general trend, their rate income has increased compared with previous estimates. Because we are dealing with the years 1991-92 and 1992-93, the RSG adjustments obviously relate to existing local authorities. Subject to the House approving the order, the adjustments will be made at the beginning of the new financial year and will obviously be taken into account in the closure of the accounts of the authorities concerned.

The House may wonder why the AEF guarantee related only to the three years from 1990-91 to 1992-93 and not to subsequent years. The answer is that, since the introduction of the arrangements for the pooling of business rate income from 1993-94, it has been possible to deal with fluctuations in the level of rate income administratively. However, exactly the same principle applies, namely, that local authorities do not lose out if the actual rate income is below the estimated amount.

I shall now turn to the notional amounts report. The report's purpose is to specify for each of the 21 new mainland councils an amount that will be their base line for considering any capping action this year. My right hon. Friend has power to cap an authority either when he considers that its budget is excessive in absolute terms or

28 Feb 1996 : Column 923

when there has been an excessive increase in its budget compared with that for the previous year. In practice, the second of these powers--the power to control the year-on-year increase in spending--has been the basis of the capping regimes north and south of the border in recent years.

Obviously, the new mainland councils do not have actual budgets for 1995-96. However, the Local Government etc. (Scotland) Act 1994 made provision for my right hon. Friend to specify in a report to the House the amount for each new council which, in his opinion, should be used as a basis for comparison for capping purposes. That is the report which is under debate. In effect, it specifies notional 1995-96 budget figures for each of the new councils. It is important to stress that those figures have not been plucked out of the air inSt. Andrew's house.

Mr. Ernie Ross (Dundee, West): Oh yes they have.

Mr. Kynoch: They have not. They are the product of a great deal of consultation with and co-operation from COSLA and local authorities, especially the 10 disaggregating authorities. The overriding objective in producing the figures has been to ensure that they reflect as accurately as possible the planned level of expenditure in the current year by the old councils in each of the new council areas. In other words, it is the actual level of planned expenditure that the new councils will inherit from their predecessors. For councils in the aggregating areas, that was done by adding together the 1995-96 budgets of the relative regional and district councils. In the other areas it was, where appropriate, necessary for the old councils to disaggregate their 1995-96 budgets among the new council areas.

The disaggregation exercise was carried out in accordance with a set of detailed principles which are in annex 2 to the report. Those principles were fully discussed with and agreed by COSLA and the relevant local authorities. I pay tribute to the thorough and professional way in which each of the 10 disaggregating authorities has carried out the exercise of apportioning its 1995-96 budget to the new council areas.

Mr. Malcolm Chisholm (Edinburgh, Leith): Does the Minister accept that the cash increase between this year's notional budget and next year's budget for Scotland as a whole is roughly 1 per cent? In particular, does he accept that the increase for Edinburgh is 1 per cent. and not the 2.66 per cent. that he mentioned when I met him this morning, which includes community care transfers, the cost of local government reorganisation and other disregards? The key figure is 1 per cent. in cash terms, which is a massive real terms cut.

Mr. Kynoch: I do not accept that. I went through the argument with the hon. Gentleman this morning and I do not propose to go through the detail again because of time constraints.

Inevitably, there have been some local disagreements about the figures, but the Scottish Office has been in no position to second-guess the apportionments made by the disaggregating authorities. [Interruption.] If the hon. Member for Hamilton (Mr. Robertson) wants to intervene, I will happily give way to him.

28 Feb 1996 : Column 924

The amount shown in annex 1 to the report for each of the new councils is a pretty true indication of what the outgoing councils plan to spend in each of the new council areas during the current financial year. Consequently, the amounts are a fair base line for the 1996-97 capping regime.

The Local Government Finance (Scotland) Order 1996 represents the final stage of the local government finance settlement, which my right hon. Friend the Secretary of State first announced on 28 November. I gave the House details of the settlement last week when replying to an Adjournment debate initiated by the hon. Member for Glasgow, Springburn (Mr. Martin), but it is appropriate to repeat the figures.

The settlement provides for Government-supported expenditure to be set at a level of £6.168 billion. That is an increase of £136.9 million--or 2.3 per cent.--on the current year's figure after adjusting for transfers of responsibility between central and local government, so that a like-for-like comparison with the current year's settlement can be made. Hon. Members who attended the briefing session that I arranged last week will recall that Government-supported expenditure comprises provision for debt servicing costs and services. The provision for services is known as grant-aided expenditure.

The settlement also provides for aggregate external finance to be set at a level of just less than £5.369 billion. That is an increase of £148 million--or 2.9 per cent.--on the current year. That increase is £26.5 million more than the Barnett formula consequences of the English local government settlement. My right hon. Friend the Secretary of State could have quite reasonably allocated that £26.5 million to other Scottish expenditure programmes, but instead it has been used to increase the local government settlement.

The AEF total comprises three elements. First, a little more than £417 million is estimated for specific grants. The great bulk of that figure is for a specific police grant. Secondly, the total includes the amount that is being distributed to local authorities from the non-domestic rate income pool, which totals a little more than£1.313 billion. Thirdly, the AEF total includes revenue support grant totalling nearly £3.639 billion.

The report that accompanies the order provides a very detailed explanation of its purpose, but it may be helpful to the House if I briefly summarise the position. The first and by far the main purpose of the order is to distribute the second and third components of the AEF total--non-domestic rate income and revenue support grant, to which I have just referred--among the 32 councils. Subject to the House approving the order, those amounts, which total nearly £4.952 billion, will be paid to the councils during next year.

The order does not deal with the distribution of the provision for specific grants. That is paid out in the light of claims during the year from councils. In distributing non-domestic rate income and revenue support grant, however, we make as good an estimate as we can of what each council will receive in specific grants.

The AEF total has been distributed among councils using exactly the same methodology as in previous years. That methodology is well understood and accepted by COSLA. There are two main stages to the distribution. The first stage is to equalise for differences in councils' need to incur expenditure as measured by their grant-aided

28 Feb 1996 : Column 925

expenditure assessments. Those assessments are determined using the client group system that was first introduced in 1985 and is kept under regular review by the distribution committee comprising representatives from the Scottish Office and COSLA. A total of£1.863 billion is being distributed to equalise for differences in councils' GAE assessments.